You’ve probably heard of buying Bitcoin, or other alt coins, but there’s other ways to grow your crypto investment without having to buy more you may have not heard of.
It’s called “staking” and people are drawn to it because you can earn yields exceeding what’s available from savings accounts. Like savings accounts, there’s no universal set yield. It all depends on the project you stake with.
Though it can sound complex, once you understand how to purchase crypto and use wallets, staking is pretty straight forward.
What is crypto staking?
Staking is a way transactions are validated on the blockchain. Cryptocurrencies are built with blockchain technology. Before transactions are stored on the blockchain they are verified, and staking helps that process reach consensus.
From your point of view, staking means locking up your crypto holdings to obtain rewards or earn interest. The rewards depend on the project where the staking takes place.
Staking coins is similar to earning interest. Except rather than putting your money in a bank savings account, which the bank then uses while it’s held with them rewarding you with higher interest, you put your coins in a project that they use in return for rewards.
What coins allow staking?
Staking has become a popular way to earn higher interest than most fiat banks. As a result a number of popular cryptocurrencies now offer staking.
The biggest asset that allows staking is ETH, the native token of the Ethereum network, and the second largest crypto by market just behind Bitcoin.
Before you decide to stake it’s important to look at the possible rewards, risks and fees. Look for a staking calculator that takes into account the current value of the coin and fees for staking and withdrawing.
Sometimes fees are high enough it isn’t worth staking either a small amount, or for a short period of time.
The rewards also vary depending on how many are participating. On smaller currencies you will see much higher estimated yields. This is both due to higher risk and an incentive to attract more stakers.
A quick search on ETH staking, for example, found an estimated annual reward rate from 4% to 18%. The reward rate depends how much ETH is being staked at any given time. Other cryptocurrencies follow similar patterns. As more of that currency is staked, the reward rate reduces. The less is staked, the reward rate increases.
How to stake cryptocurrency?
First, you’ll need to own the coins you want to stake. You’re only able to stake up to the maximum amount you own. Similar to depositing funds into a savings account.
The simplest way to get started staking is using an exchange. Most of the popular exchanges offer staking in exchange for a commission.
Plus, since you’re likely to purchase coins at an exchange, this is an easy way to buy, then stake, all from the same provider. Coinbase, Binance and eToro are popular exchange that, at the time of writing, offered staking for some crypto assets.
Once you move off an exchange you’ll find smaller projects, with higher risk and reward, that offer staking. To stake with alt coins off an exchange you’ll need to be comfortable using a crypto wallet in order to connect your tokens.
It’s recommended to be very comfortable with crypto transactions, fees and using wallets before venturing out off exchanges. While it isn’t difficult, it does require more steps, and in crypto for better or worse you are fully in charge of your assets.
If you send your crypto to a wrong address, there’s no customer support to help you. No bank to provide a refund.
There are helpful communities with many found on Reddit or Discord, but it’s always best to research and understand the process before moving forward as mistakes can be final.
Staking won’t be right for every investor. But for those who have a technical understanding, and want a higher return in exchange for higher potential risk, staking is a good way to increase yield on your crypto holdings.
Just like the savings account example, when you are done staking and achieved a return you are happy with, all the coins you staked are still yours. To hold, sell, or continue to stake. The interest and rewards earned are added on top of the value of your original assets.